Chinese yuan trades flat as Japanese yen continues to strengthen

PUBLISHED : Tuesday, 16 August, 2016, 11:24am
UPDATED : Tuesday, 16 August, 2016, 11:24am

The Chinese yuan was flat in Tuesday morning trading after the central bank further strengthened the official reference point.

Analysts said the currency is likely to move sideways ahead of the G20 meeting in September.

Onshore yuan in Shanghai was trading at 6.6390 against the US dollar as of 10.29am, 0.02 per cent or 10 points weaker from a day earlier.

The offshore yuan in Hong Kong strengthened slightly, up 0.01 per cent or 10 pips to 6.6456 per dollar.

The People’s Bank of China on Tuesday continued to set the yuan reference point stronger, at 6.6305 against the US dollar, up 125 basis points or 0.19 per cent from Monday.

The yuan has stabilised after the reference rate hit a high of 6.6971 on July 19, DBS Group Research said in a note.

“The official rate has been in a range between 6.62 and 6.66 since late July. A stable exchange rate is

desirable ahead of the G20 Leaders’ Summit to be hosted by China on September 4-5,” DBS said.

“Less than a month later, on October 1, the yuan will officially become part of the International Monetary Fund’s (IMF) Special Drawing Rights (SDR).”

Investors believe that an interest rate increase by the United States will be delayed until December, a key factor keeping a lid on the rise of the US dollar.

In other currencies, the British pound strengthened 0.1 per cent on Tuesday morning to stand at US$1.2893. Sterling has traded below the threshold of US$1.3 since August 10, standing at its lowest levels in 31 years.

Separately, the Japanese yen strengthened 0.67 per cent to 100.58 per dollar.

Credit Suisse said in a note that it has turned “overall positive” on the yen, from a previous neutral stance.

It expects the yen to reach 96 against the greenback in three months and hit 93 within 12 months.

“We consider Japan’s announced fiscal stimulus to be positive for the yen. The mix of an expansionary fiscal policy that is not balanced by a more expansionary monetary policy usually is positive for a currency,” Credit Suisse head of foreign exchange strategy Marcus Hettinger and investment strategist Heng Koon How wrote in the note.